Tesla has been forced to cut its prices in China as local competition from firms such as BYD and Xpeng intensifies.
The price of their cheapest model in the China market has decreased by 5% from 280,000 RMB to 265,900 RMB. This is in addition to price cuts across their product range with the the largest drop almost 10%.
Tesla is already a big player in the Chinese EV market, with their Shanghai factory able to produce over a million cars a year at maximum capacity. Chinese firms are on the rise though – heavily subsidised, they are able to produce at much lower costs and thus offer lower prices. Last month saw record sales for BYD selling over 200,000 vehicles.
The news sent Tesla’s share price down over 7% with investors worried about the firm’s success in what is the world’s largest market. That being said, and despite economic difficulties in China, the market really is huge, and even a small slice of the pie would represent massive profits for the American EV giant.
Last month they also posted record sales in China with over 83,000 units sold. This shows that competition might be heating up, but demand is high! It is just a race of who can sell the most!
THINK LIKE AN ECONOMIST!
Q1. According to the law of demand, what should happen to quantity demanded when Tesla decrease their price.
Q2. What is meant by the term subsidy?
Q3. With the use of a diagram, analyse how Chinese EV firms are able to sell their cars at lower prices.
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